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Student Loan Debt on the Rise

…who needs college anyway?

In a New York Times, Economix article Catherine Rampell explains how Americans have been getting better at paying off their debt in the last year, with a glaring exception: student loans. Is College the Right Choice?

The article continues to show that consumer debt fell again in the third quarter and seems that this figure has been falling for four years now.  But in its “Quarterly Report on Household Debt and Credit,” the New York Fed found that education debt totaled $914 billion as of June 30—up $10 billion from March 31.

The actual delinquency rate for student loan borrowers may be about twice as high as stated, according to the New York Fed, “because almost half of these loans are currently in deferment, in grace period, or in forbearance and therefore temporarily not in the repayment cycle.”

So what’s with the rise in student loan debt and the decline in repaying it?  Almost everyone is more likely to have student loan debt than a few years ago.  A four year college graduate’s pay advantage over high school grads has doubled over the last 30 years.  With this in mind, more and more people believe that the key to success lies in obtaining a college degree.  Many prospective college attendees are under the beliefs that if money for college is tight, borrow what you need.  But can we all afford to bear this burden? Watch out for the money trap!

It would seem that one of the major reasons for running up so much debt for school is that the cost to attend college is ever increasing.  The cost of a college degree in the United States has increased “12 fold” over the past 30 years, far outpacing the price inflation of consumer goods, medical expenses and food. According to Bloomberg, college tuition and fees have increased 1,120 percent since records began in 1978.

With the soaring cost of college and the inability of new college graduates to find a job, the only thing that could possibly happen is that these student loans will not be able to be serviced and end up in default.

While I personally have obtained the all-important college degree, and the debt to go along with it, I’m not sure I would encourage my 2 boys to go to college if they were of the age.  Immediately after college, I was unable to obtain a decent paying job in my field, and that was what seems like 100 years ago.

My plan for our boys was for them to join the family business when they were old enough.  With the financial / real estate catastrophe, we were forced to close our mortgage company, so much for the boy’s future employment.  Still, I would encourage my sons to take a look at a trade school as opposed to a conventional 4 year college.  The cost of a trade school is far less than a traditional college and there are usually employers who enjoy picking up new employees at these schools.

Even though these schools are not conventional, there is still financial aid available.  The other great thing is that it is usually possible to find a trade school close to home, eliminating the added cost of moving away to attend college.  Also, another perk is that they mooch off of their parents for a few more years by living at home.

Yes, I would certainly advise anyone considering heading off to a 4 year college to consider something closer to home and targeted to preparing them for employment after graduation.

It is possible to start a trade school the same time the other guy starts his 4 year school, and have graduated and landed a good job and earn some dough, all before college boy makes it to his junior year.

Well, thanks to the recent financial crisis, I can say that I have finally started working in my field.  See, that only took a measly 13 years!

Sure, go ahead.  Go to college, everything will be fine.

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